UPDATE 1-JGBs give up gains and slip as market braces for fresh supply

Reuters Staff

2 Min Read

(Updates prices)

TOKYO, Dec 30 (Reuters) - Japanese government bonds gave up earlier gains and slipped on Friday as the market braced for next week’s 10-year debt auction.

March 10-year futures were down 0.09 point at 150.16 after climbing to 150.45 earlier in response to overnight gains by U.S. Treasuries.

Ahead of an auction of the maturity on Jan. 5, the benchmark 10-year JGB yield was up 1.5 basis points at 0.055 percent, pulling away from a three-week trough of 0.035 percent touched the previous day.

The 30-year yield rose 2.5 basis points to 0.730 percent.

“Selling is centred mainly in the super long maturities. But last-minute bids from index-following investors are likely to limit losses,” said a dealer at a domestic securities house.

Index-following investors such as life insurers and pension funds usually buy longer-dated JGBs at the turn of each month to adjust the durations of their bond portfolios.

The 10-year JGB yield, which yielded 0.055 percent on Friday, was on track for a decline of about 20 basis points on the year, having ended 2015 near 0.300 percent.

The yield fell below zero earlier in the year under the Bank of Japan’s negative interest rates policy, and touched a record low of minus 0.300 percent in July amid turmoil in global markets following Britain’s Brexit vote.

But it has since climbed out of negative territory as the BOJ did not boost its already aggressive bond buying, eventually opting for a yield curve control scheme under which it aims to keep the benchmark yield around zero percent.

JGB yields have also recently felt the tug from the surge in Treasury yields that took place after the U.S. elections in November. (Reporting by the Tokyo markets team; Editing by Kim Coghill)